The Economics of COVID-19

Badi H. Baltagi, Francesco Moscone, Elisa Tosetti, Badi H. Baltagi, Francesco Moscone, Elisa Tosetti

• Publisher: Emerald Publishing Limited
• Year: 2022
• ISBN:
  9781800716957
• Topic: Volkswirtschaftslehre
• Subtopic: Makroökonomie

The global health crisis, exacerbated by the COVID-19 outbreak, has challenged all sectors of society, including health, economics, finance, and social inequality. The threats and complexities from the COVID-19 pandemic shock are the core subject of this latest volume in the Contributions to Economic Analysis series.

The Economics of COVID-19 contains selected contributions analysing the effects of this pandemic, covering macroeconomics, computable general equilibrium models, financial markets, the reduction in seismic noise due to the slowdown in traffic and economic activities caused by the spread of the virus, the rapid surge in the digital transformation of production and consumption. Also included are health studies proposing to improve the traditional epidemic models, the effects of the pandemic on mental health, Minority Ethnic Groups in the UK, as well as the Lombardy region in Italy.

The aim of this collection is to spur much needed research into the effects of COVID on the global economy, the health, and financial sectors, as well as its effects on development and growth and economic inequality.

Understanding Economic Instability during the Pandemic: A Factor Model Approach

Monica Billio, Roberto Casarin and Fausto Corradin

Abstract

This chapter studies the effects of the COVID-19 pandemic on the economic structure of the US and EU economies by measuring its impact on some reference macro-economic variables. We use a factor model approach on a set of variables available at different frequencies (daily, weekly, monthly, and quarterly) and provide evidence of instability in the primary factors driving the economy. A sequential analysis of the factors allows us to evaluate the model's forecasting performance and extract some instability measures based on the factor model's eigenvalues. Finally, we show how to use COVID-related variables, such as policy, economic, and health indicators, to compute conditional forecasts with factor models, and perform a scenario analysis on the variables of interest to understand economic instability.

Keywords: COVID-19; factor models; forecasting; scenario analysis; uncertainty; vector autoregressions

1 Introduction

Despite the relevance of the topic, the impact of COVID-19 on economic systems has been investigated in only a few papers. Much attention has been paid to possible recovery patterns and how they can be driven by more sustainable choices. The multiple positive effects of lockdowns on the environment and society, including biodiversity (Prakash & Verma, 2020) have been analysed, but as Ibn-Mohammed et al. (2020) argue, it is helpful to diagnose the danger of relying on pandemic-driven benefits to achieving sustainable development. Ibn-Mohammed et al. (2020) also emphasizes the need for a decisive, fundamental structural change to the dynamics of how we live. Also, in Battiston, Billio, and Monasterolo (2020), there are several analyses of the possible economic impacts of COVID-19 from different perspectives. Battiston et al. (2020) discuss how ‘business as usual’ recovery strategies may jeopardize mid-to-long-term sustainability and financial stability objectives. Strengthening socio-economic resilience against future pandemics (as well as other shocks) calls for recovery measures that are fully aligned with sustainability and climate change objectives and global corporate taxation policies; tackling these long-term objectives is not more costly than funding the current short-term measures.

Among the possible consequences of the pandemic, the shock to the labour market is certainly one of the most relevant, and it should be managed in a manner that does not leave a post-COVID-19 world more disastrous (Aberinpoka Awafo, Kwame Morgan, & Quartey, 2020). The impact of COVID-19 on event businesses is also relevant (Madray, 2020). The relationship between the COVID-19 pandemic and the financial markets has been investigated (Sansa, 2020) in the context of various factors, such as lockdown approaches, moratoriums, different impacts on banking, financial services, and the insurance sector (Ramasamy, 2020). The effect of the pandemic has already been examined in the context of Chinese economics (Liu, 2021), the short-term global economy (McKibbin & Roshen, 2021), and across industries and countries (Fernandes, 2020), and attempts have been made to investigate the possible mechanisms of economic contagion (McKibbin & Vines, 2020).

The purpose of this chapter is to study how the COVID-19 pandemic has changed economic structures, focusing on the US and EU economies. We aim to measure...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Contributors
• Preface
• Understanding Economic Instability during the Pandemic: A Factor Model Approach
• General Equilibrium Analyses of COVID-19 Impacts and Policies: An Historical Perspective
• The Relationship between COVID-19 and the Financial Market
• Exploring the Economic Effects of COVID-19 in the United States through the Seismograph
• COVID-19 and Digital Economy: The Journey towards a Digital Transformation in New Normal: How to Prepare for the Future
• Estimating Uncertainty in Epidemic Models: An Application to COVID-19 Pandemic in Italy
• The Effects of the Pandemic on Mental Health
• Ethnicity and Inequality during the COVID-19 Pandemic in the UK
• The Impact of COVID-19 Pandemic on the Healthcare System in Lombardy
• Index